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2019 (5) TMI 1258 - AT - Income TaxRevision u/s 263 by CIT - addition made by the TPO though but not added by in the computation of book profits u/s 115JB - whether the accounts have been prepared by the assessee in accordance with the provisions of Part II Part III of Schedule VI of the Companies Act 1956 together with applicable accounting standards ? - HELD THAT - The accounts have been prepared in proper compliance with applicable accounting standards. There is no evidence brought on record by the ld. CIT that the accounts of the assessee have not been approved by the shareholders in the General Body Meeting or they have been subject to any enquiry by the Registrar of Companies for non-compliance to any accounting standards. Hence the entire observations of the ld. CIT with regard to verification of compliance of provisions of section 297 of the Companies Act compliance to accounting standards i.e. AS-18 AS-21 and AS-23 are totally irrelevant and not germane to the issue under consideration in the facts and circumstances of the assessee s case. The issue as to whether the transfer pricing addition made by the ld. TPO had to be added back while computing book profits u/s 115JB was the subject-matter of adjudication by the Coordinate Bench of the Delhi Tribunal in the case of M/s Cash Edge India (Pvt.) Ltd. vs. ITO 2016 (1) TMI 598 - ITAT DELHI This decision of the Delhi Tribunal was duly brought to the attention of the ld. CIT while giving reply to show cause notice issued u/s 263 and the ld. CIT conveniently ignored the same and does not whisper about the same in his final finding while proceeding to treat the order of the ld. A.O as erroneous and prejudicial to the interest of the revenue. CIT had only mentioned in Para 5 of his order that the transactions with related parties and associated enterprises require elaborate examination by A.O by conducting detailed enquires and verifications in the light of provisions of Companies Act relevant accounting standards and income tax Acts. We find that the ld. CIT had not specifically pointed out any exact error committed by the ld. A.O while framing the assessment. Instead the ld. CIT only directed the A.O to make detailed and roving enquires through the route of invoking revisional jurisdiction u/s 263. A.O is not empowered to make any addition or deletion to the net profit as per Profit Loss A/c prepared in accordance with Part II Part III of Schedule VI of Companies Act 1956 and relevant accounting standards thereon other than those items specifically mentioned in Explanation 1 to section 115JB(2). Reliance in this regard is also placed on the decision in the case of CIT vs. HCL Comnet Systems and Services Ltd. 2008 (9) TMI 18 - SUPREME COURT . There is no absolute allegation that the annual accounts of the assessee company were not passed/approved by the shareholders in the General Body Meeting. Thus order of the A.O was neither erroneous nor prejudicial to the interest of the Revenue warranting invocation of revisional jurisdiction u/s 263 - Decided in favour of assessee.
Issues Involved:
1. Whether the Commissioner of Income Tax (CIT) was justified in invoking revisional jurisdiction under Section 263 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Justification for Invoking Revisional Jurisdiction under Section 263 Facts: - The assessee, engaged in the business of producing coal tar pitch, filed its return of income for the Assessment Year 2011-12. - The assessment was completed under Section 143(3) of the Income Tax Act, 1961, determining a total income of ?61,66,77,310/-. - Disallowances and adjustments were made, including an adjustment to arm's length price by the Transfer Pricing Officer (TPO) amounting to ?1,72,04,492/-. - The CIT sought to revise this assessment under Section 263, arguing that the Assessing Officer (AO) erred by not adding the transfer pricing adjustment to the book profit under Section 115JB. CIT's Observations: - The AO did not verify whether the transfer pricing addition should be included in the book profits under Section 115JB. - The AO failed to verify compliance with Section 297 of the Companies Act, 1956, and relevant accounting standards (AS-18, AS-21, and AS-23). - The CIT deemed the AO's order as erroneous and prejudicial to the interest of the Revenue. Assessee's Arguments: - The assessee contended that no further adjustments could be made to the book profit beyond those specified in Explanation 1 to Section 115JB(2). - The assessee provided documentation, including the annual report and responses to notices, to support their compliance with accounting standards and provisions of the Companies Act. Tribunal's Findings: - The Tribunal noted that the transfer pricing adjustment is not listed in Explanation 1 to Section 115JB(2) as an item that should be added to net profit for computing book profits. - The Supreme Court in Apollo Tyres Ltd. v. CIT held that the AO cannot re-compute profits in the profit and loss account except as provided in the Explanation to Section 115J. - The Tribunal found no evidence of non-compliance with accounting standards or the Companies Act in the assessee's audited accounts. - The Tribunal referenced the Delhi Tribunal's decision in M/s Cash Edge India (Pvt.) Ltd. vs. ITO, which held that transfer pricing adjustments should not be added back to book profits under Section 115JB. Conclusion: - The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. - The CIT's invocation of Section 263 was deemed unjustified as it was based on a misinterpretation of the law regarding adjustments to book profits under Section 115JB. - The Tribunal quashed the revision order passed by the CIT under Section 263. Result: - The appeal of the assessee was allowed, and the Tribunal ordered that the AO's assessment be upheld without the revisions proposed by the CIT. Order Pronounced: - The order was pronounced in the Court on 05.04.2019.
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